This year, around 344,000 Canadian baby boomers are stepping into their senior years. While spending your retirement on a beach in Costa Rica might seem like the ultimate dream, turning 65 can present some financial challenges. Managing multiple income sources—such as government benefits and pensions—can feel overwhelming after years of receiving a steady paycheck from one employer.
David Ablett, Director of Tax and Estate Planning at Investors Group, notes that retirement requires new budgeting skills to handle income from various sources. Luckily, there are some golden rules that can help retirees make the most of their finances. Here are four key tips Ablett shares to help you thrive in your golden years:
1. Take Control of Your Credit Cards
While being a senior may come with discounts at the movie theater, it doesn’t make paying off your credit card any easier. The same principles of responsible credit card use apply, regardless of age.
“Paying off consumer debt, such as credit cards, should still be a top priority,” says Ablett. He advises retirees to look at their income streams and create a plan to eliminate any credit card debt within a reasonable timeline. Being proactive about reducing debt now can help you avoid interest charges eating away at your retirement savings.
2. Reassess Your Credit Card Habits
In your working years, carrying a balance on your credit card may have been manageable. But in retirement, it’s time to rethink how you use credit. Many credit cards offer benefits like travel points, cash-back rewards, or other bonuses. However, if your income has dropped, overspending on a credit card can cause financial strain.
“Seniors should be aware of how their credit card spending fits into their new budget,” Ablett warns. Interest on credit card debt can quickly eat into savings, impacting your overall lifestyle. Being conscious of spending and prioritizing paying off balances can protect your retirement nest egg.
3. Create a Budget Fit for Retirement
The budget that served you well during your working years might not work as well in retirement. As your income changes, so too should your budget. “Make sure your budget is realistic and can cover all your planned expenses,” advises Ablett. He also recommends accounting for periodic expenses, like insurance payments, taxes, and, of course, vacations.
The golden rule? Ensure your monthly income exceeds your expenses. Understanding where your retirement income is coming from and how to maximize it is crucial for long-term financial security.
4. Understand Your Pension Plan
Navigating the different sources of retirement income—whether it’s Old Age Security (OAS), the Canada Pension Plan (CPP), company pension plans, or your Registered Retirement Savings Plan (RRSP)—can be tricky. The key is understanding how these systems work and how they fit together.
“Learn all you can about your pension plan,” says Ablett. This means knowing when you’re eligible for payments, what happens if you take early retirement, and whether your pension is indexed to inflation. The more informed you are, the better you can plan for a comfortable retirement.
By keeping an eye on your credit cards, adjusting your spending habits, building a budget that works for your new lifestyle, and fully understanding your pension options, you can ensure your retirement years are financially secure and enjoyable.
